For many students, the excitement of opening an acceptance letter is quickly overshadowed with anxiety over how to pay for their education. Colleges try to allay the concerns of students and their families with another letter, one that details the student’s financial aid award. This letter explains the financial aid students will receive and shows how much they will be expected to pay upfront—their overall “net price.” Unfortunately, because each institution creates its own letter, it is nearly impossible for students to understand how much they will owe and to compare packages among institutions. Today, Senator Al Franken (D-Minn.) introduced bipartisan legislation that seeks to end the confusing nature of these letters by requiring all institutions to adopt one standard letter.

Current financial aid award letters make it difficult for all but the savviest of students to figure out their financial aid. Fundamental questions like “How much will I owe when I graduate?” and “What will my monthly payments be?” are seemingly hidden, often making the college look like a better deal than it actually is. Many schools package scholarships, grants, work study, and loans all together yielding one seemingly gigantic “award,” even though students will have to pay the loans back. Some letters are riddled with jargon and acronyms, making it almost impossible for students to understand whether the aid is a loan or a grant. Here are just a few examples (including my own award letter) that illustrate just how confusing these letters can be:

Model letter from Georgia Tech Financial Aid Office

Model letter from the University of Texas-Pan American Financial Aid Office

Actual letter from Harvard Graduate School of Education

Franken’s “Understanding the True Cost of College Act” would require institutions to use the same letter—one developed by the Department of Education, in consultation with other federal agencies like the Consumer Financial Protection Bureau (CFPB). The legislation would require a number of seemingly common-sense measures to help give students and parents the information they need to make informed decisions about paying for college. The letter must clearly illustrate the full cost of attendance and a calculation of a student’s net price after accounting for grant and scholarship aid. Loans would be kept separate from grants and scholarships. Private loans would be kept separate from federal loans. Institutions would be prevented from using jargon and acronyms. And the letter would also include estimated monthly loan payments on the ten-year standard repayment plan.

CFPB has already been working on a mock-up of such a letter. Compare this with the letters above:

Standard award letter proposed by CFPB

While this mockup doesn’t include all the elements of the legislation and still needs to be field tested, it’s clearly a move in the right direction. College is a serious and (seriously) complicated investment for students and their families. Current financial aid letters at their best are puzzling, but at their worst are downright misleading. At the very least, students should be able to understand exactly how much they will need to take out in loans and what that means for repayment. Thanks to Senator Franken and the co-sponsors of this bill, we are one step closer to helping all students understand the true cost of college.

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This is great work! I recently spoke to somebody who graduated with $200k in student loans, and more needs to be done to educate these borrowers on what their repayment requirements are going to be upon graduation!

Thank you for the article and really good illustrations. Senator Franken made a good job and this inititative will help a lot of students.
And I also agree that "College is a serious and (seriously) complicated investment for students and their families". And comlicated award letters is only a part.

I feel like families breath a sigh of relief when they see the PLUS loan, only to find out Mom and Dad have to be able to qualify, and that you have to start paying off so soon.

Megan CarolanMay 25, 2012 at 10:49 am

I absolutely agree with Ellen about the PLUS loan. Trying to help my brother navigate his financial aid paperwork the last few years is so much more complicated than my own undergrad a few years ago. I feel like families breath a sigh of relief when they see the PLUS loan, only to find out Mom and Dad have to be able to qualify, and that you have to start paying off so soon. Love the look of the sample letter!

Ellen RonayneMay 24, 2012 at 8:52 pm

Thank you for this Rachel. This year I notice that a lot more schools are including the PLUS loan as part of the package, as if it is a "done deal" even if the parent is eligible/can afford it.